By month: October 2015
Do you have a solo 401(k) plan with more than $250,000 in it? Did you, your tax preparer, or the plan administrator file your 5500-EZ? Are you sure? The penalty for not filing the required 5500-EZ for a plan year is $25 a day, capped at $15,000. That’s for one plan year. If you failed for 10 years, that’s $150,000.
Pay less in taxes this year by donating clothing and household items. When you know what to do and how to do it, the noncash deductions available here can help you pocket some hefty after-tax cash that costs you nothing but a little time and effort.
One of your first tax steps in buying a rental property is to go through each line item in the closing statement and assign it to one of the following three categories: (1) basis, (2) loan acquisition, or (3) operations. With basis, you allocate costs to land, land improvements, buildings (including perhaps building components), and equipment. Loan acquisition falls into either costs of getting the loan or costs to reduce the interest rate. The assignments have a direct impact on how quickly you realize the deductions.
Tax law places your collectible activity in one of four tax categories: (1) hobby, (2) investment, (3) trader, or (4) dealer. This means your collectible activity can, depending on category, trigger the AMT, capital gains, and self-employment taxes. When you know the rules that place you in these categories, you can make adjustments. Sometimes the adjustments are easy; at other times, they require rethinking the collectibles activity.
You need to know the tax rules before you convert business property to personal use. You don’t want the recapture surprise. You don’t want the tear-jerking missed tax deduction. With a little tax knowledge, you can avoid both the surprise and the tears.
Have you been claiming zero depreciation for your home office so that you can avoid the depreciation recapture tax? Surprise! Tax law has allowed and allowable depreciation rules that can make you pay the recapture tax without giving you the actual depreciation deduction. If this happens to you, you are going to pay a double tax.
You don’t automatically get to deduct mortgage interest on a rental property. Lawmakers have set traps. One trap can totally destroy the interest deduction. Another trap makes you wait a long time to realize the tax benefits of the deduction. Make sure you know what the traps are so you can avoid their impact on your bottom line.